When auditing merchandise inventory at year-end, the auditor performs a purchase cutoff test to obtain evidence that
A)all goods purchased before year-end are received before the physical inventory count.
B)no goods held on consignment for customers are included in the inventory balance.
C)no goods observed during the physical count are pledged or sold.
D)all goods owned at year-end are included in the inventory balance.

Question

Quizplus · Accepted Answer

A purchase cutoff test ensures that transactions near the year-end are recorded in the correct accounting period. This helps verify that all goods owned at year-end are included in the inventory balance, ensuring the accuracy of the financial statements.

When Auditing Merchandise Inventory at Year-End, the Auditor Performs a Purchase